GLOBAL SELLING BLOG

CIF Incoterms vs CFR Incoterms: Know the key differences

Explore key differences between CIF and CFR Incoterms, two essential shipping terms in international trade. Learn how each term impacts buyer and seller.

Navigating international markets brings new complexities, particularly with shipping logistics. Incoterms, established by the International Chamber of Commerce, outline the responsibilities of buyers and sellers in cross-border trade. ¹A thorough understanding of Incoterms like Cost and Freight (CFR) and Cost, Insurance, and Freight (CIF) can help businesses adhere to applicable regulations and streamline operations. In this blog post, we discuss the differences between CFR and CIF in exports, and their advantages and disadvantages.

What is Cost and Freight (CFR) Incoterm?

Under Cost and Freight (CFR), the seller clears the goods for export, puts them on the ship at the departure port, and covers shipping costs till the destination port, but the risk transfers to the buyer as soon as the goods are loaded onto the ship. After that, the buyer bears the risks and handles all extra costs, including import clearance and duties of the cargo.²

What is Cost, Insurance and Freight (CIF) Incoterm?

Cost, Insurance, and Freight (CIF) is an Incoterm where the seller bears the cost of sending goods to the destination port and also provides insurance for the goods in transit. ³ Generally, the insurance covers at least 110% of the contract value, which protects the buyer from any loss or damage during transit.⁴ The risk transfers from the seller to the buyer once the goods are on the ship.

Difference between CIF and CFR Incoterm

The insurance component under CIF, where the seller pays the cost of shipping in addition to insurance, is the primary distinction between the two. The following are some pros and cons of CIF and CFR Incoterms:

CIF Incoterm: Advantages and disadvantages

CFR Incoterm: Advantages and disadvantages

Cost and Freight (CFR) vs. Cost, Insurance, and Freight (CIF) example

Let’s assume an Indian exporter is shipping textiles to a buyer in the United States. Under CFR, the exporter pays for transporting the textiles to the US port, but the risk shifts to the buyer once the textiles are boarded on the ship. In case of loss or damage to goods during transit, the buyer will bear the loss unless they have arranged their own insurance. However, under CIF, shipping and insurance costs are borne by the Indian exporter. In case of any loss during transit, the buyer is protected by insurance and therefore will not suffer losses.

Conclusion

In international trade, selecting the appropriate Incoterm is essential for minimizing costs, mitigating risks, and streamlining shipping operations. Knowing the distinctions between CFR and CIF allows buyers and sellers to make more informed decisions, leading to better shipping practices and enhanced risk management. For e-commerce exporters, these Incoterms are especially valuable as they offer clarity and security in managing cross-border logistics. For additional support with e-commerce exports, Indian exporters can leverage the tools and services offered by e-commerce export programs like Amazon Global Selling.

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and you want to sell your products to the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an e-commerce export program, Amazon Global Selling provides support and guidance at every step of your export journey, connecting you to Amazon’s Service Provider Network for tailored compliance, payments, and logistics support.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for Fulfillment by Amazon (FBA) and outsource order fulfillment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling simplifies the process of international shipping to the world, helping businesses navigate customs and reach a vast audience.

Frequently Asked Questions

1. Who pays freight in CFR Incoterms?

In CFR Incoterms, the seller bears the cost of cargo up to the destination port. The cost of unloading the goods and moving them to the inland destination is borne by the buyer.

2. What are Incoterms?

Incoterms, or International Commercial Terms, are international rules of trade that are published by the International Chamber of Commerce (ICC). They outline the roles of buyers and sellers in international business transactions, such as who is expected to be in charge of transportation, insurance costs, and customs formalities.

3. What insurance coverage is required under CIF?

Under CIF terms, sellers are responsible for the insurance of the goods that are to be shipped. Generally, this insurance covers at least 110 percent of the contract value, so as to minimize cases of loss or damage during transit.

4. Are CFR and CIF applicable for all modes of transport?

CFR and CIF are only used in sea and inland waterway transport. For other modes of transport, different INCOTERMS like CIP (Carriage and Insurance Paid to) and CPT (Carriage Paid To) are applicable as these are related to air, road, and rail transport.

Published on September 30, 2024.

Sources:

1. https://www.trade.gov/know-your-incoterms

2. https://www.aitworldwide.com/resources/incoterms/incoterms-cfr-cost-and-freight/#:~:text=Under%20CFR%20terms%20(short%20for,the%20named%20port%20of%20destination.

3. https://www.investopedia.com/terms/c/cif.asp

4. https://www.tradefinanceglobal.com/incoterms/cif-price-cost-insurance-and-freight/#:~:text=The%20amount%20of%20the%20insurance,the%20named%20port%20of%20destination.

5. https://www.eurosender.com/en/incoterms/cif-vs-cfrcredit#:~:text=To%20be%20eligible%20for%20export,all%20the%20necessary%20export%20documents.

Related blogs